Study The Ideal Organization For Your Business
Can you think of the proper legal organization for your small business
? Legal structure refers to the organizational set up of a business. Deciding on the type of your business' legal structure is important, as it will have an impact on the conduct and operation of your business, including your tax payments and personal financial obligations.
The usual legal structures in business are the proprietorships, the partnership and the corporation.
The sole proprietorship which is owned by just one person is the simplest and easiest to organize business legal structure. The business being personally owned by an individual, business profits are taxed as personal income of the business owner. One of the disadvantages of a proprietorship is that the owner including his assets is liable for any losses or indebtedness of the business. At least two persons must file for a partnership type of business. Like a sole proprietor, the partners are similarly but proportionately responsible for the tax obligations and any losses of the partnership. Because the corporation is a more intricate organization than either the proprietorship or partnership, and it is also harder to put up. The owners and investors have different legal personalities from the corporation; this applies to income and taxation and they also are not liable for corporate tax obligations or indebtedness.
A businessman who wants to save money on taxes may opt for an S-Corporation (Single Person Corporation) type of business. Usually the only employee of the business, they are being paid a salary for which they pay the corresponding income tax. After being paid their salaries, the remainder of any income is treated as dividend payment and is taxed accordingly. With the profit separated into salary and dividend, the S-Corporation owner earns more in terms of tax savings.
Before making a choice as to the type of an organization your business would be, you should know that many businesses came from a small beginning, as sole proprietorship or a partnership. This type of business organization offers several advantages, such as little paperwork, simple permits and licensing processes, and minimum risks of losses and liabilities, and is therefore more apt for a small business. As your business grows, there is a corresponding increase in the risks assumed, capital requirements and monetary obligations, so the next step would be to incorporate the business to isolate it from your personal resources and to facilitate the acquisition of any needed capital input.
by: Leo Adkins
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